Since 2009, the emergence of cryptocurrencies and the underlying blockchain technology has created an alternative medium of exchange and storage of value to fiat currencies, which has spurred a wave of innovations and new trends within the financial sector and beyond. Yet traditional financial institutions remain cautious about engaging with the industry, mainly due to concerns about regulatory ambiguity, financial crime, and reputational risk. The purpose of this project was to weigh potential business opportunities and risks associated with cryptocurrencies and blockchain technology for financial institutions, all within the emerging regulatory environment. More specifically, the team’s research addressed four main research objectives:
- Benchmarking adoption and highlighting trends in the digital currency and blockchain space by financial institutions
- Identifying a select number of key use cases for the financial services industry and highlighting challenges, risks, and main players
- Outlining the regulatory landscape on digital assets in the US and other select jurisdictions
- Highlighting major risks from conducting business in the cryptocurrency industry, including money laundering, sanction evasions, terrorist financing, and fraud.
The team developed recommendations tailored to Morgan Stanley’s business, as well as implications for the broader financial sector. Recommendations were grouped into three categories: 1) engagement with the sector (including regulators and consortia), 2) feasible products and use cases, and 3) risk management and governance.